rogoff, smart economist, not very good with the law.
The reason you could not bail out homeowners is it was unfeasible in expense. Banks didn't carry a large portion of the mortgages, it was end investors. This means the government would either have to violate standing contract law (you know, what the home owner signed before getting the money) or get EVERY SINGLE INVESTOR to agree. There were no provisions for changes in payouts based on 90 or 95% agreement. You would need everyone to agree to take a loss.
And as the mortgages were stacked in structured bonds, this would mean that the higher risk tranches would get beaten for 100% to protect the AAA tranches as much as possible. good luck getting ANY of those groups to agree to this without first restructuring the payout profile of the bonds, and you would have to do this with EVERY SINGLE DEAL.
Rogoff doesn't realize what he was basically asking for was the government to go in and, one at a time, renegotiate every single mortgage when the lender was a large, diverse group of investors. It's a nice idea, and would have worked if the mortgages were all kept on a bank's balance sheet. But in fact the banks kept almost none of the mortgages and instead just joined investors in owning bonds.
His method would have taken YEARS during a crisis that needed a solution in weeks.